Question

What is moral hazard? It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction. It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off. It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. It refers to the private, self-interested actions that people pursue, which when taken collectively leads to a loss in economic surplus.

Answer 1

Answer: Option (a) is correct.

Explanation:

Moral hazard is a type of risk that one of the party has not entered into the agreement with a good intention. Also, they may provide incorrect or misleading information about them to take an advantage from acting opposite to the laid principles.

These type of activities mostly occurred in the lending and insurance industries where defaulters were not provided the true information about their work and business.